The summer Budget – reform to taxation of dividends

Whilst the full details are not available, our understanding is as follows:

There won’t be any impact on pension and ISA accounts, offshore bonds or VCTs.

Under the new system, no one who receives dividend income will have to pay tax on the first £5,000. Basic rate taxpayers will pay 7.5% tax on any additional dividend income; higher-rate taxpayers will pay 32.5% and additional rate taxpayers 38.1%. The Chancellor has said that those with portfolios above £140,000 will likely pay more tax.

The changes are targeted at directors who remunerate themselves with dividends but will also affect investors in shares and investment funds (such as unit trusts and OEICS).

These changes will come into effect from 6 April 2016 (the next tax year). The reforms increase the importance of using tax-efficient accounts such as ISAs and pensions and potentially complicate planning for income in retirement. This will emphasise the importance of holding dividend-producing investments in tax-efficient wrappers and growth assets directly.

There is no change to Capital Gains Tax (CGT), with an exemption of £11,100 and tax rates of 18% and 28%.

The UK tax system will become even more complicated after the announced changes come into effect and, more than ever, the expertise and advice of our financial planners can help.

If you have any questions, or would like to discuss the above, please give us a call on 020 7189 2400, request a call back or email at best@bestinvest.co.uk

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. The above article is based on our interpretation of the Budget July 2015 and related legislation; it is not intended as advice, and the impact of any changes to tax rates or allowances will depend on your personal circumstances.

The value of your investment can go down as well as up, and you can get back less than you originally invested.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.